Citigroup sold a series of mortgage-linked securities without disclosing that Morgan Stanley helped shape them while betting they would fail, according to a report by Bloomberg News.
The news service, quoting "two people with knowledge of the matter," reported that marketing documents for the $205 million Jackson Segregated Portfolio, underwritten by Citigroup Securities in 2006, do not say who picked the underlying mortgage bonds. A Morgan Stanley unit helped select the bonds, the people said, speaking anonymously because the deal was private, Bloomberg reported.
Six of the seven series of Jackson bonds later defaulted, costing investors more than $150 million, data compiled by Bloomberg show. Citi said in the Jackson marketing documents that its interests in the deal "may be adverse" to those of investors in the CDO bonds.
"We expressly disclosed in marketing the Jackson CDOs that the collateral selection may have included factors adverse to investors," said a Citigroup spokeswoman. "Having said that, we remain committed to enhancing the transparency of all financial transactions in which we are involved." Morgan Stanley spokesman Mark Lake said he could not comment.